Africa’s investment environment for both businesses and financial investors is now reviving, with a continuing and steady improvement in the trade-off between risk and reward as growth on the continent rebounds, the third edition of the Africa Risk-Reward Index from Control Risks and Oxford Economics finds.

After several years of political and economic turbulence, with the weakest growth since the early Nineties, we now project an accelerating resurgence in growth in Sub-Saharan Africa (SSA) to the end of the decade that will see strengthening investment returns versus risk.

SSA GDP growth is forecast to climb to 3.7% next year, after picking up to 2.9% this year from 2.6% in 2017, and an anaemic 1.1% in 2016. By 2020 SSA growth should reach a buoyant 4.3%. Other key economic indicators, such as levels of foreign direct investment, have also been improving.

Crucially, our latest Africa Risk-Reward Index findings highlight how the recovery in sub-Saharan Africa’s outlook is not being driven by the “usual suspects” of the region’s major economies, notably Nigeria and South Africa.

Along with Angola, we find that Nigeria and South Africa have seen only minor improvements in the risk-reward trade-off since our last report in June. This chimes with recent warnings from the International Monetary Fund (IMF) that poor relative performance by these economies is holding back the wider African economy.

The dramatic political changes in South Africa and Angola that were highlighted in our June edition of the index are arguably laying an important foundation for longer-term growth. But even broadly positive political changes can increase uncertainty rather than opportunity in the short term.

The far-reaching political change occurring across swaths of sub-Saharan Africa since late 2017 have seen reform agendas being pushed by new leaders in countries such as Angola and Ethiopia that represent broadly positive steps towards future growth. However, we find that only in Zimbabwe have the current wave of reforms yet led to significant improvements in our risk-reward scores.

The lesson is that even necessary reforms to economic policy and political institutions may typically have an adverse short-term impact. Investors may be inadvertently caught in battles for influence in the new political landscape, legislative changes inevitably cause uncertainty, and structural challenges built up over years are not fixed in months.

Investors should bear these considerations in mind as they try to ascertain the likely impact of recent and upcoming elections that we examine in more detail in the latest report. Regardless of how these elections play out, there is likely to be a short-term adverse impact, pushing up risk scores and holding down reward scores. What is important is whether these elections lay the groundwork for future growth.

Jacques Nel, Chief Economist for East and Southern Africa at Oxford Economics added, “From the reward point of view, the most interesting change in the index is the improvement by one of the continent’s giants, Nigeria, which has emerged from recession thanks to a combination of policy initiatives and a recovery in oil prices. This more favourable outlook is reflected in its latest reward score, which shows it gaining some ground on other African geographies.”

Barnaby Fletcher, senior analyst at Control Risks comments: “Since the first edition of the Africa Risk-Reward Index, the continent has seen dramatic political changes. However, what we are seeing is that ambitious rhetoric from new leaders is no substitute for solid structures and sensible policies built up over many years. Obtaining an understanding of an investment destination that goes beyond the headlines is therefore crucial.”

This third edition of the Africa Risk-Reward Index explores the impact of current and future political change in more detail, focusing on recent and upcoming elections in Congo (DRC), Nigeria and Gabon, and their potential impact.

We also explore several smaller markets for investors. We consider the outlook for Uganda and Rwanda, two countries with a number of parallels, but where differing economic ideologies and leadership styles have seen their trajectories diverge, although growth and investment prospects will remain positive for both countries.

We also consider prospects in Tunisia, which has struggled to fully recover from the Jasmine Revolution of 2011, but where there are some early signs that the ambitious reform agenda pursued by the government is starting to have a positive impact. However, personal ambitions among the political elite will continue to slow the pace of reforms.